Open Internet Coalition wants unlocked iPhones for everybody

The Open Internet Coalition is on Capitol Hill to talk about anti-competitive …

Today the Open Internet Coalition goes before the House Subcommittee on Telecommunications and the Internet to discuss "Wireless Innovation and Consumer Protection." Ben Scott, Washington policy director of free press, said the hearing "ought to be called the 'iPhone hearing'" due to its relevance to consumer choice with phone devices, open networks, and focus on promoting competition in the wireless market.

Yesterday we took part in the a conference call with members of the Open Internet Coalition who discussed what they plan to address in front of the House Subcommittee. In attendance were: Tim Wu, professor, Columbia Law School; Chris Murray, legislative counsel, Consumers Union; Chris Libertelli, senior director, government and regulatory affairs, Skype; Ben Scott, washington policy director, free press; and Gigi Sohn, president and cofounder, Public Knowledge.

Down with anticompetitive lock-ins

One way wireless carriers avoid full-tilt competition is with lock-ins. According to Chris Murray, the government should consider the effects of "early termination fees, as they relate to what's happening in terms of innovation in this space," he said. "Some companies charge consumers as much as $200 to avail themselves to other choices and switch to another carrier.

Murray suggests that termination fees make competition between wireless carriers virtually nonexistent, as people are often unwilling to switch from one carrier to another until their contracts are fully expired. Worse still, the long lock-ins don't always provide any proper consideration for consumers entering those contracts.

"We want lower consumer prices," Murray said when referring to the $600 price of the iPhone. "Consumers don't get a single dime of subsidy on the new iPhone, but it'll still get them locked into a two-year deal or penalty to leave the carrier." Murray also referenced the Blackberry Worldphone, which has the ability to roam across European and American networks, but in order to use this ability consumers need to pay a $20.00 fee. "What's going on here? The basic fact is that [Blackberry] has coupled the market for handsets and applications with the market for consumers."

Wireless spectrum should be open

Christopher Libertelli, senior director of government and regulatory affairs for Skype, spoke a bit about Skype's recent letter to the FCC discussing its support for "open wireless internet services based on the Federal Communication Commission's landmark 1968 Carterfone decision." As a brief history behind the decision, in 1968 it was ruled that Thomas Carter's two-way mobile radio and other devices could access AT&T's network, provided they didn't cause any damage to it. Later, it opened up the market to other household items that also used telephone lines, like caller-ID systems and fax machines. Libertelli said "the Carterfone decision was about establishing consumer rights for both sides of the equation," with both sides meaning consumers as well as service providers. Libertelli also feels that there needs to be more competition in the wireless market so that "innovation can be put to work for consumers." He added, "Openness will be more valuable because consumers will be able to do more with connections, like talk to family around the world for free and save money on phone bills."

Gigi Sohn is president and co-founder of Public Knowledge, which is concerned about the 700MHz spectrum auction we reported on yesterday. According to Public Knowledge, the auction could make it possible for the "development of a third, nationwide broadband Internet provider that could compete with the powerful incumbent telephone and cable companies which control 96% of [the] broadband lines in this country." Sohn's take on the issue is that there are currently four major wireless broadband providers, and although it seems that they compete with each other, they really don't. She says, "Each provider has a closed network that limits consumer choice. This is not serving innovation, and the FCC can ensure that the same mistakes aren't made when it develops its rules for the 700Mhz doctrine."

"We should be getting competition from wherever we can find it," Libertelli added. "When the Internet intersected with telecom, we received a whole new source of competition. There are tons of VoIP companies, much more than four. There needs to be competition for wireless service at the access and software layers of the network."

The group also discussed the markets in Europe that offer a "robust set of choices for consumers" that are "two or three years ahead of our choices. We stand here in a country that has traditionally done innovation really well, why can't we do it really well in a wireless space also?"In order to improve innovation in the United States, they hope to see a "no blocking, no walking rule." The no-blocking rule would allow consumers to walk into any store, buy any phone that they see fits their needs, and run it on a network of their choice. Murray added, "The time has come for the industry to become a normal industry. When you switch cable providers, do cable companies say, 'Guess what? Your TV is finished?'"

Next-gen wireless policy should spur innovation

Tim Wu, a professor at Columbia Law School, said he was going to focus on the big picture of wireless policy today. In February, Wu discussed the Carterfone decision and wireless neutrality. Now, Wu thinks "we've reached the end of the first generation of wireless policy, which had mixed results." However, Wu also sees the intersection between telecom and the internet as a "crucial moment in moving to the second generation of wireless policy." With the release of the iPhone last week, we saw the ability that consumers have in promoting a product for a company. However, these same consumers are also caught up by two "bedrock" rules that Wu feels need to be discussed: "locking and blocking."

Wu thinks the first rule, device portability, is the most important: "Number portability exists, why can't we bring our cell-phones along to new carriers also? Why can't we confidently buy and use unlocked devices in this country?" The second rule that needs to be discussed, which Wu thinks is long overdue, is "the ban on blocking." He said that carriers have gone before Congress in the past and agreed not to block users from applications and capabilities of phones and that "the carriers aren't keeping their promise in the wireless sector. No one disagrees that blocking is an anti-competitive conduct."

Earlier this morning, Meg Whitman, president and CEO of eBay, announced that it too will support the discussion for "openness" in the wireless market, which certainly shows that heavy-hitters are backing the idea for consumer friendly policies in the wireless-market.

A chink in the device portability armor

Wireless carriers won't agree with much of what the Open Internet Coalition is pushing, largely because lock-ins and high termination fees create stability for their businesses that they argue is necessary to fund infrastructure. Coupled with this is the major challenge to true device portability: competing carriers are, generally speaking, all using different networks. Hence, as much as one might like to make the jump from, say, Verizon to T-Mobile, doing so is not just a jump between two companies. Rather, Verizon Wireless phones will talk CDMA and EVDO, while T-Mobile supports GSM and EDGE with most of their offerings.

Also, the iPhone is a rarity in that its price is not subsidized by a contract. Most consumers do get price breaks when signing long contracts, although the advent of the iPhone and its subsequent early success suggests that we may see other "hot" phones debuting without contract subsidies.